AMENDED
REASONS FOR JUDGMENT
Hogan J.
I. INTRODUCTION
[1]
The Appellant, Tina Groves, has appealed the
denial of her claims for a wholly dependent person tax credit and a child tax
credit (the “Tax Credits”) in respect of her daughter, who is identified as R
in the Respondent’s reply to the Appellant’s notice of appeal for her 2014
taxation year.
[2]
The credits were disallowed by the Minister of
National Revenue (the “Minister”) on the basis that the Income Tax Act (the “ITA”) bars a taxpayer from claiming the wholly
dependent person and child tax credits in respect of a child for whom the taxpayer
is required to make child support payments to a former spouse or common-law
partner.
II.
FACTUAL BACKGROUND
[3]
The Appellant was the only witness at the
hearing. There is essentially no dispute concerning the factual background of
this case. The Appellant and her former spouse were married in 1998. There are
two children of the marriage, TB, born in 2000, and RB, born in 2001. The Appellant
and her former spouse separated in May 2011.
[4]
Pursuant to a separation agreement prepared by
the Appellant and her former spouse and dated February 27, 2011 (the “Original
Separation Agreement”), the Appellant and her former spouse share joint custody
of their two minor children.
[5]
This agreement also required the Appellant to
pay to her former spouse child support in accordance with the Federal Child
Support Guidelines (the “Federal Guidelines”), beginning on May 1, 2011.
[6]
After the Appellant’s claims for the Tax Credits
were disallowed by the Canada Revenue Agency (“CRA”) for a prior taxation year,
the Appellant and her former spouse entered into an amended separation
agreement, dated June 6, 2015 (the “Amended Separation Agreement”). This
agreement specified that both parties were to pay each other child support in
accordance with the Federal Guidelines beginning on May 1, 2011.
[7]
The Appellant claimed the Tax Credits for RB for
the 2014 taxation year.
[8]
On January 4, 2016, the CRA initially assessed
the Appellant, at which point the Appellant’s claims for the Tax Credits were
disallowed on the basis that the Appellant was required to make child support
payments to her former spouse during the 2014 taxation year.
[9]
By notice of objection dated January 31, 2016,
the Appellant objected to the assessment. On July 15, 2016, the Minister confirmed
the assessment. This appeal followed.
[10]
The sole issue in this appeal is whether the
Minister was correct in disallowing the Tax Credits claimed by the Appellant
for the 2014 taxation year.
[11]
The Appellant’s position is that she is entitled
to the Tax Credits for the 2014 taxation year because both she and her former
spouse had intended at the time of their separation that they would make child
support payments to each other. She argues that, as a convenience, she had in
practice paid only the net amount to her former spouse. She also states that
both parents had agreed at the time that they would each claim one child as a
dependant.
[12]
The Respondent argues
that the Appellant was not entitled to the Tax Credits since, during the year
at issue, she was the only party obligated to pay a support amount pursuant to
the terms of the Original Separation Agreement. The Respondent argues that the
Amended Separation Agreement entered into in June 2015 is not applicable to the
taxation year at issue.
[13]
This is a case, like so many others that the
Court hears, dealing with a taxpayer’s eligibility for a wholly dependent
person tax credit and a child tax credit when the taxpayer is also obligated to
pay child support to a former spouse.
[14]
Subsection 118(5) of the ITA provides
that the Tax Credits are not available for a child in respect of whom the
taxpayer has paid child support to a spouse or common-law partner or former
spouse or common-law partner in the relevant taxation year.
[15]
Subsection 118(5.1) provides that the limitation
in subsection 118(5) will not apply in cases where it would operate to deny the
credit to both parents. Where subsection 118(5.1) applies, one would look to
paragraph 118(4)(b.1), which provides that, if both parents are entitled to the
Tax Credits, they must agree on who will claim them on an annual basis.
[16]
The Minister confirmed the assessment on the
grounds that only the Appellant was obligated to pay child support pursuant to
the terms of the Original Separation Agreement.
[17]
The Appellant testified that it was the
intention of both herself and her former spouse in drafting their separation
agreement that each parent would pay child support to the other in accordance
with the Federal Guidelines. She stated that, as the higher income earner, she
paid the net amount to her former spouse merely as a “convenience.”
[18]
She further explained that the parties amended
the separation agreement in 2015 after the CRA had disallowed her claim for the
Tax Credits for the 2013 taxation year. She requested that the Court give
retroactive effect to the amended agreement aligning the language of the
agreement with the original intention of the parties.
[19]
The Appellant testified that, in addition to
amending the wording of the Original Separation Agreement in 2015, from that
time onwards she and her former spouse also regularly wrote cheques to each
other to carry out their mutual support obligations. The Appellant produced
copies of two cheques at the hearing. Both were dated August 1, 2015. One was
signed by the Appellant, while the other was signed by her former spouse. The
cheques show that in that month the Appellant paid $2,091 to her former spouse
and he paid $1,557 to her. These amounts also match the then applicable amounts
set out in the Federal Guidelines.
[20]
I have no hesitation in finding the Appellant to
be a credible and forthright witness. Unfortunately, I am unable to accept her
arguments.
[21]
Because the amended agreement was entered into
in June 2015, it did not apply to the taxation year at issue in this appeal.
The amended agreement cannot apply retroactively to the Appellant’s 2014
taxation year. It is at most written evidence of what the parties intended at the
time they entered into the Original Separation Agreement, but that alone is
insufficient to secure the Appellant’s entitlement to the Tax Credits.
[22]
What matters in cases such as this is the
language of the written separation agreement and any evidence of the practices
of the parents regarding child support payments during the relevant time period.
In this respect, I am only prepared to accept the cheques provided by the Appellant
as indicative of their practice since 2015.
[23]
In addition, a review of the Original Separation
Agreement confirms that the Minister’s interpretation of the language of the
agreement is correct. Under the terms of that agreement, only the Appellant was
required to pay the net amount of child support to her former spouse.
[24]
The relevant clauses in the original agreement provide
as follows:
Party 1 shall pay
to Party 2 the table sum of child support in accordance with the Child Support
Guidelines beginning on the 1st day of May, 2011, and continue on
each month until the children of the marriage are no longer children of the
marriage as defined by the Divorce Act. We understand custody arrangements and
incomes change, and we agree when circumstances change to adjust the monthly
sum according to the Child Support Guidelines.
In addition to
the amount above described, Party 1 shall pay to Party 2 for special expenses,
the percentage of the special expense, based on income contribution, when the
expense occurs.
[Emphasis added.]
[25]
Past decisions of this Court and the Federal
Court of Appeal have consistently rejected arguments based on shared custody
arrangements involving net support payments governed by the Federal Guidelines.
In Verones v. The Queen,
the Federal Court of Appeal conclusively determined that this type of set-off
arrangement does not satisfy the requirements of the exception contained in
subsection 118(5.1). This issue has also been considered several times by this
Court in various permutations since then without any subsequent departure from
the reasons of Trudel J. A. in Verones (see the reasons for judgment of
V. Miller J. in Commet v. The Queen,
those of Bocock J. in Harder v. The Queen
and those of Woods J. (as she then was) in Sauve v. The Queen). Because of the
principle of stare decisis, this Court is similarly bound in this appeal
to apply the decision of the Federal Court of Appeal.
[26]
Turning to the second paragraph from the
Original Separation Agreement excerpted above, it is clear that the agreement
required both parents to share special expenses on a proportional basis according
to their income. The agreement specified that the Appellant would pay her portion
of the special expenses to her former spouse as and when the expenses occurred.
[27]
The Appellant testified that this language was
not reflective of their actual practice regarding the payment of special
expenses. She testified that the parties would create a budget for the year and
then pay their contributions on a monthly basis into a joint bank account to
which both parents had access.
[28]
The Appellant argued that the contributions of
her former spouse to the joint account constituted the payment of a support
amount to her.
[29]
I am precluded from accepting the Appellant’s
argument by the definition of “support amount” in subsection 56.1(4) of the ITA.
The term “support amount” is therein defined as follows:
56.1(4)
“support amount”
means an amount payable or receivable as an allowance on a periodic basis for
the maintenance of the recipient, children of the recipient or both the
recipient and children of the recipient, if the recipient has discretion as to
the use of the amount, and
(a) the recipient
is the spouse or common-law partner or former spouse or common-law partner of
the payer, the recipient and payer are living separate and apart because of the
breakdown of their marriage or common-law partnership and the amount is
receivable under an order of a competent tribunal or under a written agreement;
or
(b) the payer is
a legal parent of a child of the recipient and the amount is receivable under
an order made by a competent tribunal in accordance with the laws of a
province.
[30]
The language of the Original Separation
Agreement is clear in stating that only the Appellant was required to pay her
share of the special expenses to her former spouse. Therefore, the payments
made by the Appellant’s former spouse into the joint bank account cannot be
said to have been not made under “a written agreement” as required by paragraph
(a) of the definition of “support amount” in subsection 56.1(4). The money paid
into the joint account, which was used to fund special expenses of the
children, also was not available to the Appellant for use at her discretion as
demanded by the language of that definition. Therefore, the payments made by
the Appellant’s former spouse into the joint account cannot constitute a
support amount within the meaning of the ITA.
[31]
In dismissing the appeal, it must be noted that
the Court remains sympathetic to the position of the Appellant. At the hearing,
the Appellant expressed her sense of frustration regarding the quality of the
advice available on the CRA’s website to taxpayers who are attempting to
navigate the issue of child support payments in drawing up a separation
agreement without the assistance of legal counsel. The Appellant specifically
pointed to the examples of shared custody and child support arrangements
provided by the CRA on its website.
[32]
These same concerns have also been raised by this
Court in previous decisions (see the reasons for judgment of C. Miller J. in Ochitwa
v. The Queen).
The Court would hope that such a government-sponsored resource would, in
future, add a note clarifying that child support payments made on an offsetting
basis alone are not sufficient, in cases of shared custody, to entitle both
taxpayers to claim the tax credits relating to an eligible dependant and an eligible
child. It would be unfortunate if the tax authorities were to continue to
inadvertently mislead taxpayers in this respect.
[33]
The Appellant was not entitled to claim the Tax
Credits for the 2014 taxation year because she alone was required to make
support payments to her former spouse during that year. For that reason, the
appeal is dismissed.
Signed at Ottawa, Canada, this 12th day of May 2017.
“Robert J. Hogan”
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